U.S. v. Bailey, 02-3187.

Decision Date25 April 2003
Docket NumberNo. 02-3187.,02-3187.
Citation327 F.3d 1131
PartiesUNITED STATES of America, Plaintiff-Appellee, v. Steven E. BAILEY, Defendant-Appellant.
CourtU.S. Court of Appeals — Tenth Circuit

Daniel E. Monnat, Monnat & Spurrier, Chtd., Wichita, KS, for Defendant-Appellant.

Alan G. Metzger, Assistant United States Attorney (Eric F. Melgren, United States Attorney and Nancy Landis Caplinger, Assistant United States Attorney, on the brief), Topeka, KS, for Plaintiff-Appellee.

Before LUCERO, Circuit Judge, McWILLIAMS and ANDERSON, Senior Circuit Judges.

STEPHEN H. ANDERSON, Circuit Judge.

Steven Bailey appeals his conviction following a jury verdict on seventeen counts of wire fraud and five counts of money laundering in violation of 18 U.S.C. §§ 1343 and 1957(a). We affirm.

BACKGROUND

While working at the Boeing Aircraft Company in Wichita, Kansas, for eleven years, Bailey developed an interest in financial markets. In 1993, he left Boeing to pursue investing in the stock market, utilizing investment strategies which he developed himself. He never received any formal training in stock market investments. In May 1996, he formed the Bailey Investment Management Partnership, a general partnership, consisting of Investing Partners and Bailey as the Managing Partner. All the partners were family members and/or close friends of Bailey's. At its inception, the Partnership consisted of Bailey and eleven partners.

The Partnership Agreement was year-to-year, so investing partners entered or reentered the Partnership each year. The Partnership Agreement provided as follows with respect to Bailey's authority as Managing Partner:

The Managing Partner shall be authorized to and delegated the responsibility of investing the Partnership's funds in common stocks of companies which exhibit high earnings growth and high stock appreciation potential, with a goal of the Partnership to maximize capital growth. The Managing Partner shall have no authority to invest in and shall be specifically prohibited from investing Partnership funds in real estate, oil and gas properties, commodities, futures, options, or any other high risk investment not specifically authorized in this paragraph.

App. Vol. I at 244. Investing partners sent Bailey capital to be invested around the beginning of each year. Bailey opened a Partnership checking account at Commerce Bank in Wichita and opened on-line accounts with DATEK Online and Discover Direct Brokerage, all in the name of the "Steve Bailey Partnership."

After the first year, more friends and acquaintances of Bailey's joined Bailey Investment Management Partnership. Bruce Wilgers, the chief financial officer at Fidelity Bank in Wichita, Jim Ruane, Fidelity's senior vice president and general counsel, and John Laisle, Fidelity's executive vice president, all eventually joined the Partnership.

Between May 1998 and May 1999, Bailey made seventeen wire fund transfers from the Partnership's DATEK account to his personal account at Boeing Wichita Employees Credit Union. Bailey used those transferred funds to obtain "contracts for futures" in his personal account at various institutions which traded in futures. None of these transactions were authorized by the Partnership Agreement or the other partners. As indicated, the Partnership Agreement specifically prohibited Bailey from investing in futures or "any other high risk investment." Bailey also apparently used funds transferred from the Partnership accounts to his personal accounts to pay for a new home he built for his family.

Bailey was required by the Partnership Agreement to provide quarterly reports to the partners. Those reports falsely reported the Partnership capital, Partnership earnings and Bailey's Partnership income. They also failed to reveal that Bailey was investing in futures, in contravention of the Partnership Agreement.

After initially experiencing success in the stock index market, taking the initial Partnership investment of $200,000 and increasing that amount to $1.4 million, Bailey ended up losing virtually all of the Partnership investment money. In a report to the partners dated June 30, 1999, Bailey listed the ending capital of the Partnership as $2,418,292.26. App. Vol. II at 477; App. Vol. III at 618. In reality, at that point, the Partnership capital was something less than $2000. App. Vol. II at 478; App. Vol. III at 618-19.

On June 30, 1999, Bailey's parents loaned him $600,000, which Bailey placed in the Partnership accounts. Bailey gave his parents a mortgage on his new home to secure the loan. Apparently, Bailey lost most of that $600,000 as well.

From the beginning of the Partnership until its termination in August 1999, the Investing Partners invested more than $1,941,000.00 in the Partnership. At the time of its termination, the Partnership consisted of Bailey and more than 50 investors. The Partnership account contained $369,676.00 upon its termination. None of the partners made money from their investments; rather, virtually all of them lost their investments.1

In August 1999, Laisle filed suit against Bailey, alleging that Bailey had committed various acts in violation of the Partnership Agreement. The suit sought termination of the Partnership and to have an accounting. Another investor, James Ruane, filed another civil action against Bailey, his wife and his parents, alleging that they had participated in a fraudulent conveyance, that the mortgage on the Bailey home should be set aside, and that the home should be held in trust for the partners. Eventually, the two suits were certified as class actions and were consolidated.

The civil suits resulted in a settlement. The government thereafter charged Bailey with seventeen counts of wire fraud and five counts of money laundering. On March 7, 2001, Bailey was indicted in a twenty-two count indictment. Counts one through seventeen alleged seventeen separate wire transfers from the DATEK Partnership account to Bailey's personal account at the Boeing Wichita Employee's Credit Union, in violation of the wire fraud statute, 18 U.S.C. § 1343. Counts eighteen through twenty-two alleged five incidents where he transferred funds from his personal account at Boeing Employee's Credit Union to other accounts under his control, in violation of the money laundering statute, 18 U.S.C. § 1957(a).

Bailey initially retained Stephen M. Joseph as defense counsel. On May 7, 2001, the government filed a motion to disqualify Joseph because of his pre-indictment relationship with Ruane, one of the investors in the Partnership and a plaintiff in the civil suits against Bailey. The district court by written order granted the government's motion.

Bailey then retained Jack Focht as defense counsel, who entered his appearance on July 31, 2001. As explained more fully below, Bailey filed a substitution of counsel on November 12, 2001, substituting Steve Rosel for Jack Focht.

Trial to a jury commenced on November 27. At the close of the government's evidence, and at the close of all evidence, Bailey moved for a judgment of acquittal which was denied. On December 3, 2001, the jury found Bailey guilty of all seventeen counts of wire fraud in violation of 18 U.S.C. § 1343 and all five counts of money laundering in violation of 18 U.S.C. § 1957(a).

The Presentence Investigation Report ("PSIR") indicated a guideline range of 63 to 78 months. Bailey filed a number of objections to the PSIR, to which the government responded. Applying the 2001 sentencing guidelines, the court grouped the money laundering and wire fraud counts pursuant to USSG § 3D1.2. Because Bailey's money laundering counts resulted in the highest offense level, the court calculated Bailey's base offense level under § 2S1.1, which applies to money laundering. Acknowledging that, pursuant to USSG § 2B1.1, the amount of loss is to be reduced by any amount returned "to the victim" of the crime before the offense was detected, the court considered whether the $600,000 returned to Bailey and placed in the Partnership accounts was returned "to the victim." The court concluded that there was no evidence that all of the $600,000 was actually given to the victims before Bailey's crimes were detected. The court further imposed a two-level increase for abuse of a position of trust, and declined to reduce Bailey's base offense level for acceptance of responsibility. The court imposed a 57-month sentence on each of the 22 counts, to run concurrently, and imposed restitution in the amount of $949,044.52.

Bailey appeals. He also filed with the district court a motion for release pending appeal. The district court denied the motion, and we affirmed that denial. Bailey has renewed his appeal of the district court's denial of release pending appeal, and we have again affirmed that denial.

Bailey argues: (1) he was denied his right to counsel of choice when the district court disqualified his attorney, Steven Joseph, over Bailey's objection; (2) the government's evidence was insufficient to overcome Bailey's good-faith defense and sustain his conviction beyond a reasonable doubt; (3) the indictment failed to allege a crime and the evidence was insufficient as a matter of law to prove that Bailey used a wire communication to further a fraudulent scheme; (4) at trial, the government relied on a scheme not charged in the indictment and there was therefore an unconstitutional variance between the indictment and the proof at trial; (5) the court's good-faith instruction was internally inconsistent and confusing; (6) the government erred in presenting rebuttal testimony concerning the terms of the civil settlement and the court committed plain error in admitting that evidence; and (7) the court erred in its interpretation and application of the sentencing guidelines in (a) calculating the amount of loss; (b) enhancing Bailey's sentence for abuse of a position of...

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